Operating conditions in the manufacturing sector - Vietnam’s bedrock - point to ongoing growth, with output, employment, and new orders - both overall and overseas - continuing to expand, according to HSBC’s Vietnam at a Glance report for March to May released on June 13.

The bank is concerned, however, that a soft patch may be around the corner, because the pace of growth in these key components has slipped to multi-month lows.

“Also, manufacturers’ confidence receded to its lowest level in nearly four years,” the report noted.

“With headline PMI at 51.6 (down from 54.1 previously) in May, the pace of growth was at its weakest since March 2016. The underlying details are also less encouraging, as both output and new orders grew at a softer pace, and the slowdown in growth of new export orders was particularly sharp. Similarly, even though hiring continued for the fourteenth straight month, the pace of employment growth was at its weakest since last July.”

In the context of the Production Managers’ Index (PMI) being weaker than before, HSBC said this is not a pressing concern as other high frequency data like trade and retail sales remain resilient and strong.

“Strong growth in retail sales and passenger car sales - a useful guide to domestic spending trends - have grown by an average of 12.4 per cent year-on-year so far this year, even though high taxes and fees offset tariff cuts and resulted in higher prices of cars,” according to the report.

The real estate market is also recovering strongly with financing from banks, foreign investors, and overseas Vietnamese buyers, and Hanoi saw 14 per cent more successful deals in May than in April, while sales of apartments are also on the rise, by 5 per cent month-on-month in April, HSBC analysts wrote.

The performance of the external sector was encouraging. “Even in an uncertain global environment, exports grew 25 per cent year-on-year in May, while the previous reading was revised upwards to 21.8 per cent (initially, it was reported to be 16 per cent),” the report said.

Exports by the foreign-invested sector rose 28 per cent year-on-year in May from 17.2 per cent in April, while the domestic sector posted 18.3 per cent growth, up from 9.7 per cent in April.

Exports of mobile phones and components, the country’s largest export items, grew at a staggering 39.8 per cent year-on-year (and 43 per cent in April), helped by recent new product launches.

Import growth also remained strong, at 26.8 per cent year-on-year in May, pushing the trade balance into deficit.